CASE COMMENT ON "SARANGA ANILKUMAR AGGARWAL V. BHAVESH DHIRAJLAL SHETH & ORS, 2025 INSC 314" - Ms. Eesha Garg*

The Consumer Protection Act, 1986 (hereinafter ‘CP Act, 1986) is an act that provides protection of the interest of the consumers and the Insolvency and Bankruptcy Code, 2016 (hereinafter ‘IBC, 2016’) was enacted for efficient insolvency resolution process of corporate persons, partnership firms and individuals in a time bound manner. This case comment analyzes the judgement passed by the Hon’ble Supreme Court on 4th March, 2025 where it elucidated the legislative intent of the punitive measures and penal function for non-compliance of the consumer commissions orders under section 27 of the CP Act, 1986 and why it should be strictly adhered to. It also drew a distinction that the moratorium of the company under section 96 of the IBC, 2016 does not bar the consumer proceedings under the CP Act, 1986

1. Introduction.

The Hon’ble Supreme Court was hearing an appeal against the order and the final judgement passed by the National Consumer Disputes Redressal Commission (hereinafter ‘NCDRC’). The appellant had prayed to stay the order passed by the NCRDC with respect to the execution of multiple penalty orders (27 in total) regarding the recovery of debt on the ground that there was an interim moratorium triggered under section 96 of the IBC, 2016 and that all legal proceeding with respect to the debt shall be deemed to be stayed as per section 96(1)(b)(i) of the IBC, 2016 as it would constitute an act of double jeopardy. They also raised a contention that the criminal intent envisaged under section 27 of the CP Act, 1986 for non-compliance of the commission's orders was of recovery nature and failure to comply would not amount to punitive criminal punishment. The division bench of the Hon'ble Supreme Court opined that the execution order passed by the NCDRC under section 27 of CP Act, 1986 was in the nature of awarding damages for deficiency in service which came under the definition of ‘excluded debts’ under section 79(15) of the IBC, 2016 and thus was not applicable for initiation of insolvency process under section 94 of the IBC, 2016 and further emphasized that damages arising out of legal violations, consumer protection claims or penalties for non-compliance imposed by the courts cannot be shielded by a moratorium because it would uproot the public policy and the real intent of the remedial mechanism of the consumer fora

2. Brief Facts of the case:

The appellant was the proprietor of East & West Builders (RNA Corp. Group Co.), engaged in a real estate development where an execution petition under section 27 of the CP Act, 1986 were filed by the Respondents, who were a batch of homebuyers, before the NCDRC as the appellants had failed to deliver possession of residential units to the respondents, as per the agreed timeline recorded in the NCDRC’s order. The appellant had sought stay of the execution proceedings before the NCDRC on the contention that an insolvency proceeding under Section 95 of the IBC, 2016 initiated by the State Bank of India against the Appellant before the National Company Law Tribunal (hereinafter ‘NCLT’) was pending and was at the stage of an interim moratorium under Section 96 of the IBC, 2016.

The NCDRC denied the stay to the appellant on the ground that the consumer claims and the penalty imposed did not fall within the moratorium under the IBC, 2016. It held that interim moratorium under Section 96 of the IBC, 2016 does not bar the continuation of consumer proceedings under Section 27 of the CP Act, 1986. Aggrieved by the NCDRC’s order, the appellant preferred an appeal before the Hon’ble Supreme Court of India.

 

3. Questions for determination before the Supreme Court:

 The Hon’ble Court set out to determine:

i.  Whether the execution proceedings under section 27 of the CP Act, 1986 can be stayed during an interim moratorium under Section 96 of the IBC, 2016?

ii.  What is the distinction between civil and consumer proceedings concerning a debt moratorium?

 

4. Appellants Contentions:

The appellant contended that Section 96 of the IBC, 2016 creates an absolute bar on any proceedings against the debtor regarding any debt once an interim moratorium is in place including the consumer proceedings and further stated that the proceedings under Section 27 of the CP Act, 2019 are recovery proceedings and its statutory provisions cannot be equated to the punitive measures under the criminal code.

5. Respondents Contentions:

Per contra, the respondents contended that the penalties imposed by NCDRC were distinct from a ‘debt recovery’ proceedings and did not fall within the ambit of the interim moratorium under section 96 the IBC, 2016 and the penalties imposed by the NCDRC were not only monetary claims but also punitive measure to deter unfair trade practice. The moratorium imposed was limited to recovery actions and civil proceedings against the debtor and it did not extend to criminal proceedings but since the nature of section 27 of the CP Act, 1986 is inherently punitive, as it prescribes punishment, including imprisonment, for non-compliance with consumer forum orders, it cannot be considered a mere debt recovery mechanism and thus falls outside the scope of the martorium under IBC, 2016.

 

6. Analysis & Findings of the Hon’ble Supreme Court:

• The Hon’ble Court distinguished between a moratorium under section 96 of the IBC, 2016 and a corporate moratorium under section 14 of the IBC, 2016. It held that Section 14 of the IBC, 2016 had a much broader scope and could stay all proceedings against the corporate debtor, including execution and enforcement actions. But however, Interim moratorium under Section 96 of the IBC, 2016 was more limited in its scope as it applied to individuals and personal guarantors. This provision would only be applicable to only ‘legal actions or proceedings in respect of any debt’, and did not extend to regulatory penalties imposed for non-compliance with consumer protection laws. It opined that the enforcement of the NCDRC order is unaffected by moratorium under section 96 of the IBC, 2016, since the order  passed by the NCDRC exercising its statutory jurisdiction is in the nature of awarding damages as compensation for deficiency in service which fall under the meaning of ‘excluded debts’ as per section 70(15) of the IBC, 2016, and are distinct from financial debt which are subject to resurrection under the IBC, 2016.
• The Hon’ble Court also distinguished between civil and criminal proceedings concerning a debt moratorium. It opined that Civil proceedings could generally be stayed under the IBC, 2016 provisions but criminal proceedings including penalty enforcement did not automatically fall within the ambit unless expressly stated by law. The penalties imposed under section 27 of the CP Act, 1986 were distinct from ‘debt recovery proceedings’ under the IBC, 2016 as they were regulatory in nature and had arisen due to non-compliance with consumer protection laws.
• The Hon’ble Court also analyzed the distinction between punitive actions and criminal proceedings and observed that punitive actions in the regulatory sphere, such as those imposed by the NCDRC, were meant to ensure compliance with the law and to act as a deterrent against future violations and aim to protect the public interest rather to punish criminal behavior. Whereas a criminal proceeding was initiated by the State against an accused to determine guilt and impose penal consequences on the establishment of mens rea.
• The Hon’ble Court opined that Section 27 of the CP Act, 1986 deals with non-compliance with consumer protection orders, which were remedial in nature rather than criminal. The primary focus of proceedings under Section 27 of the CP Act, 1986 is to enforce consumer rights and ensure that service providers fulfil their obligations. These proceedings do not assume the existence of a financial debt but rather deal with deficiencies in service and the failure to comply with consumer redressal mechanisms. It held that the claim under section 27 of the CP Act, 1986 cannot be equated with recovery of an outstanding debt and does not fall within the purview of moratorium and would defeat the intent of consumer laws and the statutory provisions to uphold consumer rights.

7. Conclusion.

This judgement is a welcoming precedent that aims to protect the individuals its liabilities and further gives the consumers the upper hand in exercising its rights. It carves out a distinction to why interim moratorium under section 96 of the IBC, 2016 doesn't affect the regulatory penalties imposed under the CP Act, 2019. It has also curtailed the express meaning and intent of section 27 of the CP Act, 1986 and the consequences of non-compliance thereof, to ensure better adherence to consumer protection laws in India.

Statutory Reference:

• Section 27 CP Act, 1986: Penalties.— (1) Where a trader or a person against whom a complaint is made or the complainant fails or omits to comply with any order made by the District Forum, the State Commission or the National Commission, as the case may be, such trader or person or complainant shall be punishable with imprisonment for a term which shall not be less than one month but which may extend to three years, or with fine which shall not be less than two thousands rupees but which may extend to ten thousand rupees, or with both:
  (2) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), the District Forum or the State Commission or the National Commission, as the case may be, shall have the power of a Judicial Magistrate of the first class for the trial of offences under this Act, and on such conferment of powers, the District Forum or the State Commission or the National Commission, as the case may be, on whom the powers are so conferred, shall be deemed to be a Judicial Magistrate of the first class for the purpose of the Code of Criminal Procedure, 1973 (2 of 1974)
  (3) All offences under this Act may be tried summarily by the District Forum or the State Commission or the National Commission, as the case may be.

• Section 96 IBC Code, 2016: Interim Moratorium: (1) When an application is filed under section 94 or section 95—
  a)   an interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application; and
  b)   during the interim-moratorium period—i.    any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed; and, ii.  the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt.
  (2) Where the application has been made in relation to a firm, the interim-moratorium under subsection (1) shall operate against all the partners of the firm as on the date of the application.
  (3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

• 70 (15) IBC Code, 2016 “excluded debt” means— (a) liability to pay fine imposed by a court or tribunal; (b) liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other legal obligation; (c) liability to pay maintenance to any person under any law for the time being in force;
  (d) liability in relation to a student loan; and
  (e) any other debt as may be prescribed;

*This is a guest post contributed by Ms. Eesha Garg. She is an associate at the Chambers of Mr. Ashok Kr. Singh, Sr. Adv primarily practicing in the field of Arbitration, Insolvency and Commercial laws.